Economics Editor, The Age

THE big four banks are in an excellent position to pass on all of the latest 0.25 point rate cut, Reserve Bank calculations show.

Each of them sat on their hands on Tuesday rather than immediately responding as they used to, leaving it to the smaller Bank of Queensland, which passed on 0.20 points and ING Direct, which passed on the full 0.25 points.

The Prime Minister, Julia Gillard, the Treasurer, Wayne Swan, and the shadow treasurer, Joe Hockey, implored the banks to pass on the full amount, although Mr Hockey qualified his appeal by saying that if they did not they should explain to their customers why they had not. The Reserve calculations show the banks in a better cost position than they were in October when the Commonwealth, ANZ and National Australia banks passed on only 0.20 points of its 0.25 point cut and Westpac only 0.18 points.

The governor, Glenn Stevens, said in a statement that Australian banks had "no difficulty accessing funding, including on an unsecured basis".

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Mr Swan said that while ING Direct had done the right thing, the other banks had not. Ms Gillard said with Christmas approaching, the banks "should take into account that Australian families will be looking to them to pass the interest rate reduction on in full".

If fully passed on, the cut would slice another $47 from the monthly cost of servicing a $300,000 mortgage, bringing the total saving since the cuts began last November to $270 a month.

The bank cut rates because of signs that the business investment outlook was weakening, not only in mining but in the non-mining economy.

The board pays close attention to the NAB survey of business confidence which showed business conditions at their weakest for three years. It wants to strengthen other parts of the economy to take up the slack as the mining investment boom passes.

If necessary it will cut rates again to sustain economic growth, restrained only by its inflation target.

Late on Tuesday the futures market assigned a 67 per cent probability to another cut of 0.25 points at the board's next meeting in February.

The board does not believe it has cut rates to "emergency levels".

Mr Hockey said the bank was "trying to catch a falling Australian economy''. It had "dropped rates to emergency levels, not because the economy is doing well but because it is facing huge challenges".

The cut from 3.25 per cent to 3 per cent brings the cash rate to the low point reached at the trough of the 2009 global financial crisis.

But unlike that time, it has not been brought there by dramatic, unprecedentedly large cuts. Unlike during the financial crisis it has not been accompanied by a dramatic boost in government spending. Also unlike during the financial crisis it has not been accompanied by an unusually low Australian dollar but by a near-record high one.

"Anybody who would go out there and describe rates now in the same context that they were at the height of the global financial crisis is simply unqualified for high office," Mr Swan said.

"We are having an attempt to sensationalise this rate cut, not just by the Liberal opposition but elements of the media. Anyone who can't welcome a cut as such good news for families and business is … just being negative about everything."